He was a "long distance warrior" whose MCI Corporation helped end AT&T's monopoly

In the mid-1970s I worked in one of the first Sam Goody record stores. Back then Sam actually owned the places and we carried a lot of obscure, off-label classical content. One day someone phoned in to ask if we had a particularly rare item. We talked about what she wanted for a moment, and I complemented her on her taste.

"Thanks, but please, could you hurry?" she anxiously interrupted. "This is a long distance call!"

I put her on hold, rushed through the shop to find the item, then jotted her name down and put the 33 rpm record at the front desk. She hung up without saying thanks or goodbye. I took no offense. In 1974 a residential long distance call through AT&T's monopoly network was an act of economic courage for most middle-class people. The first three minutes could run as high as $12, $4 more per each additional 60 seconds. If you wished your mother happy birthday too many times, you could end up in the hole for $20—the price of a night in a decent disco era hotel.

But help was on the way. The knight-in-shining-armor was Bill McGowan, brash son of a Pennsylvania railroad engineer and now Chair of an obscure company called MCI Communications Corporation. A venture capitalist, McGowan saw gold in cheaper long distance calling through microwave radio stations. Only one problem—MCI needed Federal Communications Commission permission for the operation, something that AT&T fiercely opposed.

MCI's case against AT&T quickly wound up in court. The Department of Justice had joined the foray by the same year that I took that classical call. The huge affair eventually turned MCI into "a law firm with an antenna on the roof," as its staff joked. But by 1984 Ma Bell agreed to divest into regional parts, and McGowan became the closest thing America has ever seen to a telecommunications hero.

The David-versus-Goliath version of the story is nicely told in a new documentary, Bill McGowan: Long Distance Warrior, which will air on public television stations on September 13 at 8pm EDT.

No business as usual

AT&T Chairman (and MCI nemesis) John D. deButts

Richard Avedon

Some background: In 1969, the FCC ordered AT&T to allow MCI to stream through AT&T's basic phone network. MCI started out as a St. Louis-to-Chicago microwave operation for trucking companies. A St. Louis based MCI client would first use an AT&T phone to link to Chicago. The conversation would go through various AT&T lines, stations, and big switching offices, but then sign off AT&T's network just before it got to one of Ma Bell's "Long Lines." Instead, the call would hop onto an MCI microwave tower and fly the friendly skies to Chicago. Once there, it would again hitch rides with AT&T to its final local destination.

MCI distinguished this from long distance by calling it "private" or "business" service, a strange AT&T monopoly-era technical distinction that the FCC accepted. But the man who wears the black hat in Long Distance Warrior hated it anyway. AT&T Chair John deButts bitterly called the practice "creamskimming." To be fair, he was right. Under this arrangement, MCI got to market the priciest product that phone service offered, without having to share any of the costs of the dozens of local phone networks that it would depend upon to complete calls.

But to be fair to McGowan as well, since AT&T had pretty much wiped out any competition in local phone service, it had only itself to blame for this condition. That wasn't the way deButts saw it, of course. He truly viewed AT&T as a "natural monopoly," the concept enshrined in AT&T visionary Theodore Vail's Progressive Era motto: "One system, one policy, universal service."

More expensive long distance calls subsidized local connectivity, deButts claimed. This was the formula that supposedly made universal service universal. MCI represented a threat to that delicate balance, AT&T's wise men proclaimed.

Both ways

And so McGowan was informed by AT&T attorneys that in exchange for access to the Bell network, MCI would have to comply with a "capital contribution" plan to help with upkeep. 'How much would it be?' McGowan asked. deButts and his staff took their sweet time coming up with the details of the arrangement.

Finally McGowan's limited patience wore thin. Already plotting his antitrust suit, he met with the great man in 1973 at AT&T's New York City HQ. The exchange is recorded in Steve Coll's classic account, Deal of the Century: The Breakup of AT&T. By then, on top of the capital contribution demand, AT&T had also strategically dropped its long distance/local "Hi/Lo" service prices for customers along anticipated MCI routes.

"You can't have it both ways," deButts lectured McGowan. "You can't have competition and expect the existing rate structure to continue."

"But if you're trying to beat competition with Hi/Lo, the rate filing is premature," McGowan protested. "We haven't even started."

"We can't wait until competition has taken our business away," deButts retorted.

As McGowan described how MCI planned to expand its private line operations, deButts showed his hand. "In no way to do we think it's fair for MCI to compete in the switched telephone business," he insisted. "That's just wrong."

McGowan began to shout at deButts. "I have plenty of money," he warned—all of it borrowed from banks, of course. "I can spend it on litigation, or I can spend it on construction. I would prefer to spend it on construction."

"I've heard threats like that before," deButts furiously replied. "I won't be coerced... We will do what we have to, but you will find that we won't be coerced by threats of lawsuits."

As McGowan stormed out and the elevator doors closed, AT&T's Chairman turned to his attorneys. "Nothing about MCI can be treated as business as usual," deButts ordered.

24/7

Shortly after that standoff, a court issued the first opinion in favor of MCI's bid for access to AT&T's local phone system, which the latter telco appealed. But Long Distance Warrior's strong points are its portrayal of McGowan's chain-smoking, workaholic personality, and his successful assault not just on AT&T's monopoly status, but its public image as the quintessential benevolent corporation.

McGowan lived in a hotel just a few blocks from MCI's main Washington, DC digs. His staff had to beg him to buy some decent suits when he testified before Congress. When he finally married, it was to another entrepreneur, who lived in another city. Theirs was a happy commuter marriage.

MCI's boss also went out of his way to create a very different culture than AT&T's cradle-to-grave loyalty ethos. The company sported an unstructured, entrepreneurial atmosphere which favored new ideas over established procedures. Employees came and left the firm on a regular basis—anathema at AT&T, whose handbook went to so far as to instruct workers how to sit in their chairs.

In 1975, MCI unleashed its atomic bomb: Execunet, which McGowan told the FCC and Congress was just a more involved version of its "private" or "business" offerings. Although an Execunet call began by dialing a special MCI number, the innovation more aggressively exploited AT&T's local lines and switched exchanges. Execunet sounded like a exotic business service, but was really a long-distance product, poised to enter the residential market.

AT&T frantically warned that Execunet would destroy its subsidized relationship between long distance and local rates. When the FCC realized that McGowan had sold the agency a story, it declared MCI's new innovation an unlawful tariff. "Latent in the FCC's response was the anger of its staff and commissioners that MCI had deceived and betrayed them," writes the telecommunications historian Alan Stone.

The documentary doesn't get this deep into the legal weeds, but MCI went to court again and convinced a federal judge to overturn the FCC's move. Now AT&T found itself at the mercy of its greatest fear—a capitalized, technologically savvy competitor offering cheaper long distance telephone rates. In the public relations war that ensued, deButts insisted that MCI's service would ultimately hurt consumers via "degradation of service and higher costs."

Just paying too much

Not surprisingly, consumers found this line of reasoning unbelievable, but were still intimidated by AT&T. MCI sought to overcome this fear with a sophisticated advertising campaign that tapped into the lingering feeling of guilt that subscribers felt spending money on long distance calls.

"There was this great guilt on the part of the public," recalls advertising executive Tom Messner in the film. "'Oh this phone bill is so high.' 'You shouldn't talk to your mother.' 'You shouldn't talk to your brother.' 'Why did you call that guy?' And they would go over the bill and they would assume that they were just... bad."

So Messner came up with a brilliant TV spot that showed a woman making the same call via AT&T and MCI on a split screen—the cheaper MCI call tracked by the second. "You haven't been talking too much," the advertisement gently counseled while displaying MCI's telephone number. "You've just been paying too much."

The MCI ad that knocked AT&T Long Distance on its heels.

As everybody familiar with this era knows, eventually AT&T realized that the deButts model was finished. The corporation settled with Uncle Sam, keeping its long-distance network and gaining the right to go into the computer business. MCI grew into a $9.5 billion telecommunications contender. It offered the first early commercial e-mail service, and pioneered in mobile and fiber optic technology.

But neither deButts, McGowan, nor his creation lasted a lot longer than AT&T's January 1, 1984 divestiture. deButts died in 1986. By then, McGowan's 24/7 lifestyle had caught up with him. When someone asked whether the new MCI building would include a gym, McGowen thought he was kidding. "If you want some exercise, go climb a microwave tower!" he scoffed.

"I don't think Bill ever exercised," his nephew recalls in the documentary. "I don't think he ate very well. I think he worked all the time and he pushed himself really hard." Two years after the Bell breakup, McGowan suffered a massive heart attack. A heart transplant kept him going for five more years, until a second failure. He died in 1992 at age 64.

As for MCI, it had 30,000 employees when it fatefully merged with WorldCom in 1998. "It was the end of Bill McGowan's company," the documentary acknowledges. WorldCom's CEO Bernard Ebbers was eventually sentenced to 25 years in prison for accounting fraud, and the merged entity filed for bankruptcy. In 2006 the MCI network was bought by Verizon.

But McGowan appears to have concluded his life with no regrets about his driven personae.

"You have to have stamina," he told a public television interviewer in the 1980s. "Otherwise you give up. Otherwise you get turned. Otherwise you listen to people tell you things where, if you follow their advice, you won't do it. What you are listening to are those people's ideas about what they can do, not your ideas about what you can do."

I'm 40 and I remember this pretty well. When we would call our grandparents for birthdays or whatever, I can definitely remember them telling us they did not want to talk longer because it was "long distance". Even when I was in my late 20s and the cost had dropped to where I did not have to worry about it, they never liked to talk long when I called so they could save me money. They are dead and gone now, but I wonder if they ever thought there would come a time that long distance was free to the whole country and you could talk all day if you wanted.

"Employees came and left the firm on a regular basis—anathema at AT&T, whose handbook went to so far as to instruct workers how to sit in their chairs."

I think this will make more sense if it read "Employees came and left the firm on a irregular basis", vs the micromanaged culture of AT&T.

And on that note, was not IBM equally micromanaged during that time?

I do seem to remember reading that the IBM handbook specified things like what kind of socks you could wear. Apparently, wearing garters to hold them up was de rigeur.

I work for a midsized telco, and it does seem anachronistic that phone calls are still heavily metered and subject to tariffs when they're traveling over the same lines as internet service. It's all data when you get right down to it... nowadays people are plugging their phones and computers into the same router.

Loads of extra gaming articles, bona fide investigative journalism, and completely random but very interesting and well-written articles like this. I don't know what's happened over at the orbiting HQ, but you guys are on a roll. I've enjoyed reading Ars for many years, but in the last 3 or 4 months you have really been raising the bar.

@hobgoblin - "regular" might not be precisely the best word choice, but substituting "irregular" would change the sense of the sentence, which was simply that MCI had a very high staff turnover compared to AT&T's lengthy staff retention which was more typical of the era. "Frequently" would probably be the most accurate choice for a single word there, but "on a regular basis" is idiomatic and typically used to convey exactly that sense of "frequently", so while wordier, it's probably a slightly more comfortable read for the average English speaker. Probably overanalysis but I have a great weakness for discussion of wordcraft!

Thanks again to Matt for the article and to the rest of you lot at Ars for all your recent work!

@hobgoblin - "regular" might not be precisely the best word choice, but substituting "irregular" would change the sense of the sentence, which was simply that MCI had a very high staff turnover compared to AT&T's lengthy staff retention which was more typical of the era. "Frequently" would probably be the most accurate choice for a single word there, but "on a regular basis" is idiomatic and typically used to convey exactly that sense of "frequently", so while wordier, it's probably a slightly more comfortable read for the average English speaker. Probably overanalysis but I have a great weakness for discussion of wordcraft!

Then i am unsure about the use of a handbook micromanagement element as a comparison, as that was what made me wonder about what the line was really trying to say. If the comparison had been to some AT&T cradle to grave policy then it would make sense. But comparing the turnover of staff with micromanaging seating posture ends up being something of a apples to oranges comparison. At least that is my opinion, but then i am not a native english speaker.

Ah right - I think the comparison was intended to be between the two differing corporate cultures, using examples to show the contrast, rather than being a comparison between the specifics themselves. Matt was basically saying that the two companies managed their staff in very different ways, with MCI having a much more relaxed policy where new staff came and went very often, compared to AT&T who not only had the opposite attitude to retention, but would micromanage incumbent staff right down to the nth level.

Great article, but does anyone get the irony of where AT&T is today, basically back on the path thanks to some savvy acquisitions by SBC?

The real irony here is MCI's network being purchased by Verizon. Though the company called "Verizon" and the company called "AT&T" might right now seem to be mortal enemies, Verizon started life as Bell Atlantic -- one of the "Baby Bells" from AT&T's original breakup!

I am against the merger of AT&T and T-Mobile because I also remember the days of phone prices based on near zero competition.

exactly!

Great article, gotta DVR this one!

Not only do I remember the MCI commercials (my old man worked overseas occasionally, talk about expensive and infrequent calls) but read the link on Sam Goody... I remember them too. Seems we've gained in some areas, and lost in others.

I'm 40 and I remember this pretty well. When we would call our grandparents for birthdays or whatever, I can definitely remember them telling us they did not want to talk longer because it was "long distance". Even when I was in my late 20s and the cost had dropped to where I did not have to worry about it, they never liked to talk long when I called so they could save me money. They are dead and gone now, but I wonder if they ever thought there would come a time that long distance was free to the whole country and you could talk all day if you wanted.

" that long distance was free to the whole country and you could talk all day if you wanted." Not quite, you still have to pay for the right package. If I go over my limit per month I get charged $.40 cents per minute. It was $.80 cents 25 years ago. Were still being raped after all these years unless you pay up front or have other packages combined, but one way or another your still paying to much. Want to know how I know. Companies bragging about the RECORD PROFITS their making at their shareholder meetings.

Weird that they "took down" AT&T...but notice how big AT&T is still and how little MCI is just a footnote in history.

In fantasy RPGs one sometimes encounter a slime blob like monster that when struck splits into smaller versions. If one is not careful, one or more may get away and grow back into size of the original monster...

Weird that they "took down" AT&T...but notice how big AT&T is still and how little MCI is just a footnote in history.

In fantasy RPGs one sometimes encounter a slime blob like monster that when struck splits into smaller versions. If one is not careful, one or more may get away and grow back into size of the original monster...

Weird that they "took down" AT&T...but notice how big AT&T is still and how little MCI is just a footnote in history.

In fantasy RPGs one sometimes encounter a slime blob like monster that when struck splits into smaller versions. If one is not careful, one or more may get away and grow back into size of the original monster...

That's when you go exploring every nook and cranny of the map for that elusive and ultra-rare Magical McGowan Sword, equipping it, and returning to that slimy blob for a bit of the ol' smack down.

Weird that they "took down" AT&T...but notice how big AT&T is still and how little MCI is just a footnote in history.

In fantasy RPGs one sometimes encounter a slime blob like monster that when struck splits into smaller versions. If one is not careful, one or more may get away and grow back into size of the original monster...

That's when you go exploring every nook and cranny of the map for that elusive and ultra-rare Magical McGowan Sword, equipping it, and returning to that slimy blob for a bit of the ol' smack down.

More like a (ban)hammer, as usually it is the application of sharp edges that make them split rather then give up the ghost.

Now for the real question: Who is going to turn up now days with the guts to repeat the procedure. AT&T is back and imo needs to be broken up again, only this time with something in place to prevent it from coming back together.

MCI distinguished this from long distance by calling it "private" or "business" service, a strange AT&T monopoly-era technical distinction that the FCC accepted. But the man who wears the black hat in Long Distance Warrior hated it anyway. AT&T Chair John deButts bitterly called the practice "creamskimming." To be fair, he was right. Under this arrangement, MCI got to market the priciest product that phone service offered, without having to share any of the costs of the dozens of local phone networks that it would depend upon to complete calls.

Considering that a very vast amount of the AT&T infrastructure was built with tax dollars, public lands and private easements, and this trend continues even now, I say it was completely fair to force them to allow it. And at the rate AT&T is going, they need to forced to compete more and finally be broken up again and without the possibility of ever being able to merge again.

Matthew Lasar / Matt writes for Ars Technica about media/technology history, intellectual property, the FCC, or the Internet in general. He teaches United States history and politics at the University of California at Santa Cruz.